University of Sey v AG (SCA 11/2013 (Appeal from Supreme Court Decision)) [2015] SCCA 16 (17 April 2015);

IN THE SEYCHELLES COURT OF APPEAL

 

[Coram:      F. MacGregor (PCA) , S. Domah (J.A) , M. Twomey (J.A) ]

Civil Appeal SCA 11/2013

(Appeal from Supreme Court Decision 97/2011)

 

University of Seychelles American- Institute of Medicine Incorporation Limited

 

Appellant

 

 

 

Versus

 

The Attorney General

 

Respondent

 

 

 

 

Heard:             10 April 2015

Counsel:          Mr. A. Derjacques for Appellant 

 

 

                        Mr. D. Esparon for Respondent 

 

Delivered:       17 April 2015

 

JUDGMENT

 

S. Domah (J.A)

 

 

[1]        A hearing spanning over a period of 18 months took place between the appellant and the respondent based on an action for breach of contract where the appellant had sued the respondent for SRs250,212,500.00 with interest. The respondent who had defended the claim won the day, not on the substantive the claim as such but on a procedural issue in law. The issue which cropped up at the end of the proceedings was whether the appellant, claimant in the court below, was at all vested with corporate personality under the law of Seychelles. On the evidence, the document on which the action of the entity was based was dated 23 June 2000

 

 

 

and the registration of the entity was only effected on 11 January 2001. The then Chief Justice, after inviting submissions from counsel on this issue, dismissed the action.

 

[2]        His reasoning has been that as a matter of law and policy the appellant “represented itself as the party that entered into the agreement in question: this is false; and, inasmuch as the respondent had “neither subscribed nor ratified the contract,” .. the Court “will not lend itself to the pursuit of such claims.”

 

[3]        The appellant has put up 3 grounds of appeal, as follows:

 

1.   The Honourable Chief Justice erred in law in his interpretation and application of Article 1110 of the Seychelles Civil Code in all the circumstances of this case.

2.   The Honourable Chief Justice erred in law in his interpretation and application of Article 1119 and 1120 of the Seychelles Civil Code in all the circumstances of this case.

3.   The Honourable Chief Justice erred in law in dismissing the Appellant’s action with costs awarded to the Respondent.

 

[4]        The respondent has resisted the appeal. We have given due consideration to the grounds of appeal. We take the view that there is a patent mismatch between the law that should have applied to the simple facts of the case, the law that was pleaded and the law on which the decision was handed down. This was neither a case for article 1110 nor of 1119 nor of 1120 of the Civil Code of Seychelles. It is not a question of nullification of contract or capacity to contract. It was a simple question of finding on the simple facts whether the appellant was a legal entity at the material time.

 

[5]        Learned counsel on both sides, therefore, went completely astray when they argued the case on the basis of article 1110, 1119, 1120.

 

 

GROUND 1

 

[6]        Ground 1, based as it is on article 1110 of the Seychelles Civil Code, refers to the issue of mistake that may be discovered after the formation of a contract and the effect of same. It reads as follows:

 

                             “1. Mistake shall only be a ground of nullity of the contract if it relates to the very  substance of the thing which is the object of the contract. It shall not be a ground of nullity if it relates to the person with whom it was intended to enter into a contract, unless the personal qualities of that person are a principal consideration in the agreement.

 

                             2. There is a mistake as to the substance if the parties would not have concluded the contract had they known of the true circumstances. However, the Court, in deciding whether a party made an operative mistake, shall be entitled to take into account whether the mistake was excusable in the circumstances.

 

                             3. The innocent party to a contract that has been rescinded for mistake may claim damages under article 1382 of this  Code if he sustains any damage as a result of the rescission of the contract.”

 

[7]        The article, it should be noted, relates to mistake as to the substance of the contract. On the 23 June 2000, a tripartite document was signed between Government and the University of Seychelles–American Institute of Medicine (“USAIM”) represented by Mr R.D. Mishra, the purport of which was for the “Republic to sponsor a Charter for USAIM to establish a private medical university in the Republic” and for USAIM “to establish and operate a medical school known as University of Seychelles–American Institute of Medicine. If either party was under the misapprehension that they were setting up a private university in law or some other discipline but found later that they had entered into an agreement for a private medical university, then article 1110 would have applied.

 

[8]        Admittedly, there is a qualification to the above rule relating to substance. Paragraph 2 provides that mistake as to a person shall not be a ground unless the personal qualities of that person are a principal consideration in the agreement. Thus, if there is an agreement that A with whom an agreement is reached with B, an elderly male, that a male nurse should look after A but it is found out after the contract that A is not a male, that becomes a ground for nullity for the reason of personal qualities. If, on the other hand, A is only a young male nurse, that does not become a ground for nullity.  

 

[9]        Consequently, article 1110 is inapplicable to the facts of the case. We are at a loss to understand how the parties argued the matter under the Civil Code missing completely the real issue at stake. However, their predicament can be understood by the fact that they were pressed upon by the Supreme Court to address an issue of law out of the blue and they were little prepared for same: see Barclays Bank v Joshi Moustache SCA 1 of 1993. Leading Cases of Seychelles p. 44. 

 

GROUND 2

 

[10]      Ground 2 - which challenges the decision of the learned Chief Justice in that he erred in his interpretation and application of Article 1119 and 1120 of the Seychelles Civil Code (“SCC”) in all the circumstances of this case - is equally misconceived.

 

[11]      Article 1119 of the SCC sets the rule that a person can only take obligations with respect to what he can do and no more. And article 1120 provides for the scenario where a legal person, A, who has entered into an agreement with a legal person B that C another legal person will oblige and C refuses to do so. In such a case, A there arises a contract between A and B only and not C. C will be liable only if C has ratified the contract between A and B, in which case the original contract comes back to life retroactively.

 

[12]      The facts of the present case do not represent an article 1120 scenario, the reason being that in this case USAIM was, according to the Chief Justice,  not a legal person in the first place for having been registered itself only after the agreement. Therefore, it lacked the very capacity to enter into the contract in which the provision of article 1120 is relied on.

 

GROUND 3

 

[13]      Ground 3 is a general ground and amounts to no ground at all on account of its generality.

 

[14]      Grounds 1, 2 and 3 are, therefore, dismissed for the reasons given above. However, that is not the end of the matter. We shall now consider the real issue in the case.

 

THE REAL QUESTION BETWEEN THE PARTIES

 

[15]      This relates to the manner in which entities are vested with legal personality. The learned Chief Justice decided that at the time the agreement was reached, USAIM was not a registered entity under the Companies Act. He, therefore, held that it was not a legal entity at the time of the agreement and was incapable of forming a contract.  There is no quarrel with that proposition of law. Nor would we quarrel with the proposition of law that if a pre-incorporation commitment is meant to form part of a post-incorporation contract, the pre-incorporation contract should be ratified by the legal entity after registration. In this case, this was not done so that one cannot say that the Chief Justice went wrong in this line of reasoning when he stated that the respondent had “neither subscribed nor ratified the contract (sic)” of June 2000.

 

[16]      To that extent, and to that extent only, the Chief Justice was correct. However, he was incorrect when he limited his consideration to the issue of formal registration under the Companies Law only. He should have considered the other methods whereby legal personalities are conferred by the State to persons, bodies, institutions etc.

.

[17]      Well before the formal registration system came into being, legal personality was conferred by the King or the Queen by means of a Charter, referred to as a Royal Charter. The East India Company was formed by a Charter granted by the Queen. Many colonies were set up by Royal Charter. Several Universities universities were set up by Royal Charters, one example being the University of Cambridge, United Kingdom. 

 

[18]      The  mechanism of giving legal personality to businesses by registration came long after in the history of our legal system, more particularly after the passing of the Companies Act in 1929 and the decision of Salomon v Salomon Co. Ltd (1896) UKHL 1.  Ever since it has become axiomatic that a company obtains a legal personality by mere registration.

 

[19]      But the existence of the registration system has never excluded or ousted the prerogative of the King or Queen as the case may be in the western legal system to give legal personality to an entity by means of a Charter. When it became possible to form a company by means of a registration process under an Act of Parliament, this was a procedure in addition to, and not in substitution for, the existing system by means of a royal Charter.

 

[20]      We, in Seychelles, have a hybrid legal system comprising the common law as regards public law and French law as regards private law. We are in this area concerned with public law. In the English public law, there are only two methods for the incorporation of a body of persons so as to form a legal entity separate from its individual members: incorporation by royal charter and incorporation by statute: see 24 Halsbury's Laws (5th Edn) para 30  et al.; para 329 et al. Creation by statute may be in the form of a special Act of Parliament creating a particular corporation, or through the exercise of a power in a general Act such as the Companies Act 2006: see para 344, ibid.

 

[21]      Under English law, the grant of a royal charter to any organisation is an act of grace entirely within the royal prerogative, and no person other than the Sovereign has the right to create a corporation by grant: see para. 331, ibid. That would also mean that it is the Prerogative of the President of the Republic if he thought it fit to grant a Charter to any worthy group of individuals. As has been advised by the Privy Council the charter process is still personal to the Sovereign. It is a prestigious means of incorporation and a royal charter prescribes the objects, powers and constitution of the organisation to which it is granted:  see http://privycouncil.independent.gov.uk/royal-charters/chartered-bodies.

 

[22]      Charters were formerly used for the grant of rights to hold markets or fairs, and for promoting trade by the incorporation by charter of trading companies such as the one-time Hudson Bay Company (1670), the East India Company, the British South Africa Company (1889).  Halsbury comments that such uses of the royal prerogative are now only of historic interest and it is most unlikely that, as a matter of public policy, a body trading for profit would now be successful in becoming incorporated through the grant of a royal charter. In modern times, incorporation by royal charter has generally been confined to professional, charitable, scientific, educational or learning  non-profit-making institutions or societies. One recently granted royal Charter has been the Worshipful Company of Environmental Cleaners in 2010. There have also been many grants to livery companies in the City of London. Charters are also, from time to time, sponsored by government ministers to set up, or alter, a body in pursuance of a particular policy initiative or simply in the public interest. Examples of such bodies are the Engineering Council UK, the Arts Councils and the Technology Strategy Board, the Association of Chartered Accountants etc.

 

[23]      Halsbury further adds that the grant of supplemental charters to existing chartered bodies for the purpose of altering the terms of their existing charters continues to be of importance: see IRC v Carron Co. (1968) 45 TC 18. . Most modern charters however make provision for their amendment by Order in Council approving a resolution of the corporate members of the body concerned. However, even where such provision for amendment is made, an alteration which goes to the root of the corporate nature of the body concerned would normally be made by supplemental charter. Supplemental charters can also replace all of the substantive provisions of an existing charter, and this is not simply an amendment for the purposes of the procedure specified for such action in an existing charter: see Kosiol v Davies [2004] EWHC 1254 (Ch); [2004] All ER 313.

 

[24]      One overriding factor for the acquisition of a Royal Charter is that the corporate body so formed shall carry on an activity which is for the public good, shall not violate the common law, and must not infringe the rights of a subject: see Eastern Archipelago Co. v R (1853) 2 E & B 856 at 884; Lowe’s Case (1609) 9 Co Rep 123.

 

[25]      A body which has been incorporated through the exercise of the royal prerogative has the legal capacity of a natural person: Riche v Ashbury Railway Carriage and Iron Company Ltd (1874) LR 7 Exch 224 at 263; Sutton's Hospital Case (1612) 10 Co Rep 1a.; Hazell v Hammersmith and Fulham London Borough Council [1992] 2 AC 1 at 40, [1991] 1 All ER 545 at 564, HL.

 

[26]      Halsbury also comments that unless specific provision is made to the contrary, charter corporations are not subject to the provisions of companies legislation and, in particular, the Companies Act 2006 of United Kingdom.

 

[27]      In the light of the above, we are able to say that, whereas the learned Chief Justice was partially correct in his reasoning that the University in question had not been registered and therefore lacked legal personality under the Companies Act, he was not completely correct. He had failed to consider the up-front question whether legal personality had been conferred by the State upon the entity otherwise than under the Companies Act. Had he done so, he would have seen that, on 22 June 2000, the University of Seychelles American Institute of Medicine had been granted a Presidential Charter which Charter had been duly ratified by the President of the Republic: (see Document C6) and bears the red Presidential seal.  

 

[28]      As a consequence, it cannot be said that the claimant in this case lacked corporate personality to sue or be sued. The Chief Justice erred in so deciding. For that reason and that reason only, we allow the appeal and remit the matter to the Supreme Court to proceed forthwith with the case on the basis that there is a valid contract between the parties, subject to what we state at paragraph 29 below.

 

[29]      We note that there is an agreement between the parties that, in case of disputes arising, they  will  resolve  their differences  by arbitration.  This is an avenue which should have been contemplated by the appellant in the first place and/or prompted by the respondent.

 

[30]      This is an avenue which should be seriously looked into by the parties on account of the nature of the dispute and the propriety of resolving the matter by a method otherwise than aggressive litigation even at this stage.  The Supreme Court may defer the matter to the Arbitrator on an agreement having been reached to that effect by the parties.

 

[31]      We allow the appeal with costs.

 

 

 

 

S. Domah (J.A)

I concur:.                               ………………….                                           F. MacGregor (PCA)

I concur:.                               ………………….                                           M. Twomey (J.A)

 

Signed, dated and delivered at Palais de Justice, Ile du Port on 17 April 2015

 

 

F. MacGregor (PCA)

 

 

  1. I have read the Judgment of my learned brother, Justice Domah, and agree with it, save that I am also of the opinion that in this case the Memorandum of Understanding signed between the parties which came after the Charter, implicitly cured, confirmed and ratified the precedence of transactions before it, if at all there were wanting and defective in any way.
  2. It is clearly a document of legal obligation between two proper legal personalities which in effect specifically provides that any dispute should be settled by all means through arbitration before going to court.

 

 

 

 

F. MacGregor (PCA)

Signed, dated and delivered at Palais de Justice, Ile du Port on 17 April 2015